CHICAGO — St. Louis County will competitively sell $123 million of special obligation tax-exempt bonds and taxable Build America Bonds on Tuesday to fund a new county-wide emergency communications system.

About $68 million of the bonds that mature through 2026 are tentatively scheduled to be sold as tax-exempts. The remainder will be issued as BABs that will include a traditional 10-year municipal call feature. The division could shift depending on interest rates.

The project includes the acquisition of an 800 megahertz radio system that includes new towers and sirens and an upgrade to the county’s 911 emergency technology.

Columbia Capital Management is serving as financial adviser.

The deal marks the county’s first use of the BAB program, which provides a 35% direct-pay interest subsidy from the U.S. Treasury Department. The county expects to save roughly 50 basis points by using it.

Ahead of the sale, Moody’s Investors Service assigned a Aa1 to the special obligation bonds. It also affirmed the Aaa on $49 million of the county’s outstanding general obligation debt, and the Aa2 on $138 million of outstanding annual appropriation bonds. Standard & Poor’s affirmed the AA-plus on the special obligation bonds. It rates St. Louis County’s GOs AAA.

“We believe the county’s gilt-edged rating is indicative of the substantial tax base and role as the economic hub for eastern Missouri and the St. Louis region; the long trend of healthy reserves and strong financial management; and low debt position that is expected to remain manageable despite future borrowing,” Moody’s analysts wrote.

The bonds are secured by the county’s annual appropriation pledge, but are rated one notch higher than its outstanding appropriation debt by Moody’s because of the essential nature of the project to the county and the 0.1% sales tax dedicated to fund the system.

Voters approved the sales tax last November.

“The sales tax will provide enough funds to pay debt service and cover operations,” said director of administration Pamela Reitz. “This project is really essential for the county and we spent several years trying to find a funding method for it.”

The tax revenue is expected to provide two times coverage.

The new issue’s rating is further strengthened by the automatic inclusion of annual debt service in the budget, as well as a five-month window between typical council approval of the budget and the first debt-service payment.

The county benefits from strong fiscal operations, recording four consecutive operating surpluses through fiscal 2008 that brought the general fund balance up to $120 million, or 37% of revenue.

The county struggled last year and moved to cut spending and to implement a hiring and salary freeze to bring down its budget gap to about $10 million. The 2010 budget relies on flat growth in sales taxes and a drop in property taxes due to lower valuations.

The county is planning to return to the market in June with $30 million to fund a new expressway. The deal could include a mix of tax-exempt securities, BABs, and recovery zone economic development bonds, which provide a 45% interest subsidy.

St. Louis County, which received a $40 million RZED allocation from the federal government, has not decided yet whether to use a competitive or negotiated sale, said the county’s financial adviser, Jeff White of Columbia Capital.

The county will return in October with a $20 million issue to fund a new health department campus that includes an expanded public health lab and new clinic. The deal will include tax-exempt and RZED bonds.

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